Instead of wishing prices would go down in an executive order, the administration should allow more competition.
Last week, President Trump signed an executive order aimed at lowering drug prices. The executive order hopes to tie domestic drug prices to those abroad, allowing patients to buy their drugs directly from manufacturers at a “most favored nation” price. While the executive order is well intentioned, it does little to address the real reason drug prices are so high.
While the goals of the executive order are clear, the mechanisms the Trump administration plans to use are unclear. The executive order mandates that Americans pay no more for medications than the lowest price paid by any other country. Trump boasts that this could reduce prices between 59 and 80 percent. If drug manufacturers fail to comply, the administration plans to enforce lower prices through more extreme measures, including export restrictions and price controls. It also aims to tackle anticompetitive behavior in the drug market. Overall, the executive order lacks teeth, similar to Trump’s attempt to lower drug prices in his first term.
Americans do pay higher prices for drugs. U.S. prices across all drugs (brand names and generics) were nearly 2.78 times as high as those in comparison countries. For brand-name drugs, prices in the U.S. were at least 3.22 times as high as in the comparison countries.
Some of the higher prices Americans pay are a reflection of the U.S. being a hub for pharmaceutical innovation. In the past five years, American pharmaceutical companies have developed mRNA vaccines, better treatments for cancer, Alzheimer’s, and sickle cell anemia, and GLP-1 medications that help people lose weight and recover from addictions. Other countries, with single-payer systems (and therefore more negotiating power to have lower prices), see very little innovation.
American innovation is not without cost. Our intellectual property laws are a double-edged sword. They protect innovators and ensure intellectual property rights, but they can be too tightly laced — pricing patients out of drugs that could change their lives.
Take insulin for example. The wall of patents that surrounds insulin producers is a nearly impenetrable shield for any pharmaceutical company that hopes to offer lower prices to consumers. Sanofi, one of the Big Three producers of insulin, has filed over 70 patent applications, 94 percent being filed after their insulin product went on the market. These patents delay competition for Sanofi by 37 years. While insulated from competition, Sanofi increased the price of their drug Lantus by 114 percent.
Obesity-fighting GLP-1 drugs are another example of patents protecting manufacturers at the cost of patients. The patent protection and regulatory exclusivity applied to brand-name GLP-1 drugs will last longer than the average, preventing patients from accessing drugs that could change their lives.
Allowing for more competition from biosimilars is one way to both preserve innovation and lower prices for patients. Similar to generics, biosimilars mimic a reference drug. The primary difference between generics and biosimilars is that generics can be exact copies of chemical compounds, while biosimilars are approximations, since the reference drug is made of a living organism.
R&D of biosimilars is a vibrant industry — last year, biosimilars were approved for the treatment of osteoporosis, rheumatoid arthritis, and cancer, just to name a few conditions. An estimated 500 biosimilars were in production in 2018. And these drugs have major price-lowering power — drugs with six or more biosimilars on the market saw prices fall by 95 percent.
Lowering the price that Medicare and private patients pay is a worthy goal, but the Trump administration should be more concrete about how it hopes to reduce costs. Cutting the red tape around biosimilars is one way that the administration can protect U.S. drug innovation and make medicine more affordable for Americans.